Smoothing earnings: Regulators like New York Attorney General Eliot Spitzer have asked whether some "finite insurance" policies, in which the buyer has its premium payments refunded, are really loans used to "smooth earnings" by shifting profits from one strong reporting period to one where profits may be lower than expectations.

Regulators dislike "smoothing earnings" because it gives a false picture to investors of a company's health and breaches accounting principles.

Finite insurance: In the case of more traditional forms of insurance/reinsurance, finite transactions can be utilised to improve the capacity of a ceding party, provide for a methodology to exit certain lines of business and provide some measure of debt relief.

Finite transactions are unique in that they explicitly take into account, as part of the underwriting process, the time value of money, which could-under a reinsurance transaction, permit the ceding insurer to monetise its value of loss reserves.

If the cost of losses turns out to be less than the premium, the carrier gives back the difference to the insured.

If the losses turn out to be greater, the insured pays an additional premium to the insurer. To accounting sceptics, finite insurance can look like a way for a corporation to retain risks without really retaining them and transfer risks without really transferring them. Regulators dislike the use of "finite insurance" when no risk is tranferred and the cedant is assured of getting all its money back, as is alleged in the RenRe case.

Earnings Mistatement: A num-ber of other insurers and reinsurers, over the last year, have restated income to correct their misaccounting of finite risk contracts. These include American International Group, Ace, Max Re and RenaissanceRe had to restate earnings as a result of finite deals.